In 2018, the Westgate Construction Company entered into a contract to construct

Question

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

Required:
1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years.
2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).
3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract.
4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

2018 2019 2020 Cost incurred during the year $ 2,400,000 $ 3,600,000 $ 2,200,000 Estimated costs to complete as of year-end 5,600,000 2,000,000 0 Billings during the year 2,000,000 4,000,000 4,000,000 Cash collections during the year 1,800,000 3,600,000 4,600,000

Explanation / Answer

1 Percentage completion method 2018 2019 2020 Cost incurred in till previous year 0 2400000 6000000 ADD Cost incurred during the year 2400000 3600000 2200000 Total cost incurred till date 2400000 6000000 8200000 ADD Estimated cost to be incurred 5600000 2000000 0 Total estimated cost to be incurred 8000000 8000000 8200000 Percentage of completion (A) 30% 75.00% 100% (cost incurred till date /total estimated cost ) Total revenue (B) 10000000 10000000 10000000 Total revenue recognized (A *B) 3000000 7500000 10000000 Less Revenue recognized in previous year 0 3000000 7500000 revenue recognized in current year 3000000 4500000 2500000 2018 2019 2020 Revenue 3000000 4500000 2500000 Less Cost incurred 2400000 3600000 2200000 Gross profit 600000 900000 300000 4 Percentage completion method 2018 2019 2020 Cost incurred in till previous year 0 2400000 6200000 ADD Cost incurred during the year 2400000 3800000 3200000 Total cost incurred till date 2400000 6200000 9400000 ADD Estimated cost to be incurred 5600000 3100000 0 Total estimated cost to be incurred 8000000 9300000 9400000 Percentage of completion (A) 30% 66.67% 100% (cost incurred till date /total estimated cost ) Total revenue (B) 10000000 10000000 10000000 Total revenue recognized (A *B) 3000000 6666667 10000000 Less Revenue recognized in previous year 0 3000000 6666667 revenue recognized in current year 3000000 3666667 3333333 2018 2019 2020 Revenue 3000000 3666667 3333333 Less Cost incurred 2400000 3800000 3200000 Gross profit 600000 -133333 133333 5 Percentage completion method 2018 2019 2020 Cost incurred in till previous year 0 2400000 6200000 ADD Cost incurred during the year 2400000 3800000 3900000 Total cost incurred till date 2400000 6200000 10100000 ADD Estimated cost to be incurred 5600000 4100000 0 Total estimated cost to be incurred 8000000 10300000 10100000 Percentage of completion (A) 30% 60.19% 100% (cost incurred till date /total estimated cost ) Total revenue (B) 10000000 10000000 10000000 Total revenue recognized (A *B) 3000000 6019417 10000000 Less Revenue recognized in previous year 0 3000000 6019417 revenue recognized in current year 3000000 3019417 3980583 2018 2019 2020 Revenue 3000000 3019417 3980583 Less Cost incurred 2400000 3800000 3900000 Gross profit 600000 -780583 80583

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